I recently posted on the MarketingU Facebook page about a quick way to calculate your max income if you’re trading hours for dollars. The take-away was that it’s a good idea to identify other ways to add value to your clients beyond an hourly rate so your income level is not limited.
One way to add that value is to offer both products and services. By bundling (or packaging) your service with a product, you are often able to charge more for the bundle than you might be able to charge if you were billing for each thing separately. The example below illustrates how this works when there are two different market segments and they are willing to pay different amounts for the ‘unbundled’ parts of your offer.
| A’s willingness to pay |
B’s willingness to pay |
Entrepreneur’s Cost to Provide |
|
| Product | $1,500 | $3,000 | $1,250 |
| Service | $3,500 | $1,600 | $750 |
| Bundle Total | $5,000 | $4,600 | $2,000 |
So, if you sell the product and service separately- to sell to both A and B, you’d need to charge just $1,500 for the product (because A won’t pay more than that) and just $1,600 for the service (because B won’t pay more than that). Your total revenue would be $6,200. I have also included a column for the cost to provide the product and service and suggest considering ways to add items to the bundle that are low cost to provide but high value to your client (information goods are often in this category).
If however, you offer it as a bundle, you can sell the bundle for $4,600- since both A and B are willing to pay $4600 for the product and service together- and your total revenue will be $9,200. (So you’d make an additional $3,000!) Of course, this works because of the way that A and B value the products and services differently… if that’s not the case, then you might be better offering add-ons as separate items… but we’ll talk about that next week!